Comparative Investigation the Hazard Model and the Accounting Model Using Receive Operating Characteristic (ROC) Curve for Bankruptcy Predication

Abstract

Bankruptcy prediction in economic corporations is one of the financial branches that has become more prominent in the last two decades, so that the bankruptcy models have been developed and included variables of the macroeconomic environment and market conditions along with accounting variables. Since accounting approach is frequently used in Iran, comparing different approaches is of great importance. This study mainly aims to investigate the hazard model proposed by Campbell et al. (2008) in Iran's economic environment and compare it with the accounting model consisting of variables of the Ohlson's model (1980) and the Shumway's hazard model (2001) in prediction of bankruptcy. Figures of 241 Iranian corporations, admitted in Tehran stock Exchange between 2003 and 2015 have been used. In order to test the models, the logistic regression method was used and to compare the power of the models in prediction of bankruptcy, Receiver Operating Characteristic (ROC) curve analysis method was employed. The results show that the hazard model developed by Campbell et al. (2008) significantly predicts bankruptcy of non-financial corporations and is more accurate than the Ohlson's (2010) accounting model in predicting bankruptcy, But its difference with the Shumway model (2001) was not significant in the dimension of accuracy.

Keywords

• receiver operating characteristic curve (roc)
• hazard model
• accounting model
• bankr